1QFY19 results within our expectations

Gross revenue and NPI declined slightly by 1.8% and 2.3% y-o-y to S$52.0m and S$40.4m, respectively. This can be attributed largely to lower contribution from its Singapore retail portfolio and Australia (AUD weakness), coupled with a one-off management fee income in relation to its tenant’s renovation works for the China property. Both gross revenue and NPI accounted for 23.8% of our FY19 forecasts.

DPU slipped 4.2% y-o-y to 1.15 S cents, as payout ratio for the quarter was 95.7%, as compared to 97.9% in 1QFY18. This formed 24.3% of our full-year projection.

Notwithstanding the y-o-y decline, this was already anticipated by us as there was a higher base effect in 1QFY18 relative to other quarters in FY18, while we are also expecting a more backend-loaded year for Starhill Global REIT.

Furthermore, DPU saw an improvement of 5.5% on a q-o-q basis. We believe momentum is picking up as 4QFY18 had flat q-o-q growth while 3QFY18’s DPU was down 6.8% sequentially.

Office segment gaining traction

Recall that Starhill Global REIT’s Singapore office portfolio had hit a trough occupancy of 83.5% in 1QFY18 as a result of its material exposure to the oil and gas sector, which saw its tenants downsizing and consolidating their operations. Since then, Starhill Global REIT has gradually found a firmer footing, with physical occupancy ramping up to 92.9% (committed occupancy: 95.3%). This has been buoyed by continued rental recovery in Singapore’s office market, coupled with Starhill Global REIT’s efforts to diversify its tenant mix by bringing in new occupants such as The Great Room, a co-working operator.

In fact, NPI for its Singapore offices finally returned to positive y-o-y growth (+9.7%), following nine consecutive quarters of declines.

There was still some softness seen in Starhill Global REIT’s Wisma Atria retail component. Tenant sales at Wisma Atria (retail) decreased by 2.9% y-o-y. Actual occupancy dipped 6.1 ppt q-o-q to 91.0%, but replacement tenants have been secured, as reported committed occupancy was 99.2% at 30 Sep 18.

Attractive 7.1% FY19F distribution yield as at 30 Oct close

We keep our forecasts unchanged.

Based on Starhill Global REIT’s closing price of S$0.665 on 30 Oct, it is trading at an attractive FY19F distribution yield of 7.1%.

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